Guojin Securities: Escalation of US-Iran Conflict Reverses the "Weak Dollar" Narrative, Strong Assets Underperforming May Signal Market Bottom

Zhitong Finance APP has learned that Guojin Securities released a research report stating that global major asset classes are generally under pressure recently. On the surface, this appears to be concerns over weakening demand, but the core contradiction lies in the escalation of the US-Iran conflict, which has reversed the previous narrative of a “weak dollar”. The strong assets (US technology) that have declined in the past may signal a market bottom. The firm believes that the reasons for the decline in non-ferrous metals may not be due to “recession,” but rather the expectation of a contraction in overall dollar liquidity combined with structural redistribution, with a reversal possibly on the horizon. Additionally, against the backdrop of increasing global energy security anxiety, the unique advantages of Chinese assets are gradually becoming apparent.

Guojin Securities’ main viewpoints are as follows:

Recently, global major asset classes have generally been under pressure. On the surface, this appears to be concerns over weakening demand, but the core contradiction lies in the escalation of the US-Iran conflict, which has reversed the previous narrative of a “weak dollar”. The worries about stagflation and recession in the global economy are indeed the superficial reasons, but the underlying causes of the redistribution pattern of dollar liquidity in financial assets may be the more influential drivers of market performance.

After the outbreak of the US-Iran conflict, the United States has a relative advantage among global economies: the US, with its service-oriented economic structure, consumes significantly less traditional energy per unit of GDP compared to other countries, coupled with its own advantages in oil and gas resources, thus facing relatively smaller shocks; while the manufacturing sectors, especially in metals and chemicals, which consume more traditional energy, face greater pressure. The underperformance of global risk assets compared to US assets reflects the US’s control over the world order. Currently, the conflict continues to harm other economies more, while the market believes the US can still maneuver freely, reversing the trend of dollar liquidity overflow. Looking ahead, several variables need attention: whether the US, due to being drawn into a prolonged war of attrition over the Iran issue, loses control of the situation; whether the long-term conflict will undermine the material foundation of US technology (e.g., supply chains from Japan and South Korea), ultimately leading to a new direction for the situation; or whether new forces achieve breakthroughs through industrial advantages. Regardless, the strong assets (US technology) that have declined in the past may signal a market bottom.

The non-ferrous metals sector has faced multiple headwinds in the past. In addition to the aforementioned factors of dollar liquidity redistribution, changes in overall monetary policy expectations are also important factors: the current market pricing of the Federal Reserve’s tightening monetary policy is already quite extreme, significantly more pessimistic than the Federal Reserve’s own stance, and this expectation gap itself represents potential room for correction. At the same time, US inflation is also difficult to rise significantly: AI in the US is suppressing the wages of related workers, thus restraining service inflation, making it difficult for the US to form a wage inflation spiral; the weight of energy in personal consumption and CPI has significantly decreased; and the long-term inflation expectations in the US are currently stable. The reasons for the decline in non-ferrous metals may not be due to “recession,” but rather the expectation of a contraction in overall dollar liquidity combined with structural redistribution, with a reversal possibly on the horizon.

Against the backdrop of increasing global energy security anxiety, the unique advantages of Chinese assets are gradually becoming apparent. On one hand, China has a globally leading coal chemical and power equipment industry chain. The completeness of its energy system not only reduces vulnerability to external shocks but also effectively provides energy alternatives globally. On the other hand, leading Chinese manufacturing companies are historically undervalued compared to overseas giants in terms of PE valuation and capacity value, and sustained export growth itself proves the foundation for its revaluation. At the same time, China’s domestic demand shows signs of endogenous recovery, and the export settlement we pointed out may be transmitting to domestic demand.

The narrative of the rise of global physical assets has not ended; only by clearing the fog of the dollar can the truth of the world be seen. We recommend the following: first, in the context of global turbulence, energy security is becoming particularly important. However, this year, primary energy is stronger than secondary energy construction. We primarily recommend crude oil, oil transportation, coal, copper, aluminum, gold, and rubber; second, Chinese manufacturing is the global ballast, but the flow of physical goods is slower than that of financial assets, waiting for revaluation to come—electric power equipment for new energy, machinery, and chemicals; third, look for structural opportunities in consumption as suppressive factors reverse—tourism and scenic spots, fermented seasoning products, beer and other alcoholic beverages, pharmaceutical commerce, medical beauty, etc.

Risk warning: Domestic economic recovery may fall short of expectations; overseas monetary policy expectations may tighten significantly.